This is the third Rate Review Annual Report issued by HHS. The report uses an analysis of 2013 data from 40 states in the individual market and 37 states in the small group market to estimate the impact of the Rate Review Program and the Rate Review Grant Program on premiums. Rate review reduced total U.S. premiums by an estimated $1 billion in 2013 ($290 million in the individual market and $703 million in the small group market). Rate Review Grants totaling $250 million are improving state rate review programs.
"Background
Since its enactment in March 2010, the Affordable Care Act has resulted in the implementation of several critical protections for consumers who purchase health insurance coverage in the individual and small group markets. These protections have brought new levels of transparency and scrutiny to health insurance rates in the individual and small group markets. They include the Rate Review Program, the Rate Review Grant Program, the Medical Loss Ratio (MLR) requirement (also known as the “80/20 rule”), and provisions banning increased rates based on factors like pre-existing conditions or just being a woman. The Rate Review Program requires issuers to submit for review by HHS and/or the relevant state any proposed rate increase of 10 percent or more and to justify that increase. Through the Rate Review Grant Program, the Department of Health and Human Services (HHS) is providing $250 million in grants to states over 5 years to improve their rate review capabilities. The MLR provision requires insurance companies in the individual and small group markets to spend at least 80% of their collected premiums on claims payments and quality improvement activities or make rebates to consumers. The statutory provision addressing rating factors (section 2701 of the Public Health Service Act) prohibits the use of health status and gender as factors to set rates, and limits permissible rating factors to geographic location, single vs. family coverage, age (within a 3 to 1 band), and tobacco use (within a 1.5 to 1 band).
These provisions of the Affordable Care Act took effect at different times. The Rate Review Program began in September 2011. The Rate Review Grant Program runs for five years beginning in FY2010; the MLR requirements were effective beginning calendar year 2011; and section 2701 of the Public Health Service Act, as added by the Affordable Care Act, took effect January 1, 2014.
Rate Review Annual Reports: This is the third Rate Review Annual Report issued by HHS.1 It is based on data for calendar year (CY) 2013 submitted by states receiving rate review grants (“grantee states”), supplemented by data that are available on these states’ websites, and state website data for several non-grantee states. This report uses an analysis of data from 40 states in the individual market and 37 states in the small group market to estimate the impact of the Rate Review Program and the Rate Review Grant Program on premiums in the individual and small group markets. It focuses on the impact of these two provisions to assess trends in rate increases in the individual and small group markets. In addition the report uses data from the MLR Program to estimate consumer savings resulting from these provisions of the Affordable Care Act.
Beginning in September 2011, and continuing through April 2013, the Rate Review Program required insurance companies to document, submit for review, and publicly justify rate increases of 10 percent or more. Currently, HHS collects data on all rate increases, even those below 10 percent.2 The Rate Review Grant Program, which is separate from the Rate Review Program, enhances state efforts to review proposed increases in health insurance rates and makes information and decisions about rate increases available to the public. Under this grant program, the Secretary of Health and Human Services is authorized to award grants to states for the purpose of improving their review of proposed rates in the individual and small group health insurance markets.3 The law appropriated $250 million for rate review grants for a five year period comprising fiscal years 2010 through 2014. Each state receiving a grant is required to submit data to HHS documenting all rate increases requested by issuers for major medical policies in both the individual and small group health insurance markets of that state.4
1 The first Annual Rate Review Report can be accessed at http://www.cms.gov/CCIIO/Resources/Forms-Reports-and-Other-Resources/rat... and the second Annual Rate Review Report can be accessed at http://aspe.hhs.gov/health/reports/2013/acaannualreport/ratereview_rpt.pdf.
2 Prior to the implementation of a rate increase, issuers must now submit to CMS a Rate Filing Justification for all rate increases that are filed on or after April 1, 2013, or that are effective on or after January 1, 2014 (45 CFR part 154.220 accessed at http://www.gpo.gov/fdsys/pkg/FR-2013-02-27/pdf/2013-04335.pdf) . This requirement is mandated by § 2794(a) of the Public Health Service Act, as added by § 1003 of the Patient Protection and Affordable Care Act, 42 U.S.C. § 18001 (2010).
3 § 2794(c) of the Public Health Service Act, as added by § 1003 of the Patient Protection and Affordable Care Act, 42 U.S.C. § 18001 (2010).
4 The Rate Review Grant Program awarded a total of $51 million to 45 states, 5 territories, and the District of Columbia in the first cycle of funding. Through the second cycle of funding, an additional $119 million was awarded to 30 states, three territories, and the District of Columbia. The third cycle of funding awarded $67 million to 20 states for rate review, data centers, and all payer claims databases. Details on state rate review grants can be accessed at: http://www.cms.gov/CCIIO/Resources/Rate-Review-Grants/index.html.
2013 Findings
Key Findings:
- Rate review reduced total premiums by an estimated $290 million in the individual market for all states.
- In the individual market, the average requested rate increase was reduced by 8 percent for the 40 states examined.
- Rate review reduced total premiums by an estimated $703 million in the small group market for all states.
- In the small group market, the average requested rate increase was reduced by 11 percent for the 37 states examined.
- For both markets, the total estimated reduction in premiums for 2013 was approximately $1 billion ($993 million).
- Together with the 2013 MLR rebates of $250 million for the individual and small group markets, this estimated reduction in premiums amounts to $1.2 billion of savings to consumers in 2013 due to the Affordable Care Act’s rate review and MLR provisions.
- In 2012 the Affordable Care Act’s MLR and rate review provisions accounted for $1.6 billion in rebates and premium reductions. The combined amount of rebates and reduction in premium amounts for 2013 and 2012 was $2.8 billion.5
5 It is not possible to give cumulative totals from all 3 rate review reports (2012 report, 2013 report, and this 2014 report) because both the 2012 and the 2013 report used data from CY 2012. The 2012 data reported in the 2012 report were not complete and were updated in the 2013 report.
Individual Market
Estimated Reduction in Premiums: For these 40 states in 2013, 23.7 percent of total covered lives were in policies that had rate change requests reduced or denied. We used this percentage to make an estimate for all 50 states and the District of Columbia by applying it to 2013 Medical Loss Ratio (MLR) data for covered lives in the individual market in all 51 jurisdictions. The MLR data for the individual market in 2013 shows 10.9 million covered lives and total premiums of $32.3 billion. An estimated 2.6 million covered lives (or 23.7 percent of the nationwide total), had rate change requests reduced or denied. Based on 2013 MLR data for total individual market premiums in all states, rate review caused total premiums in the individual market to be reduced by approximately $290 million. We calculated this estimated 8 percent reduction by multiplying the difference between the average rate increase initially requested (11.2 percent) and the average rate increase implemented (10.3 percent) in those 40 states by the nationwide total 2013 premiums of $32.3 billion.6
Requested Rate Increases of 10 Percent or More: One quarter (25 percent) of rate filings in the individual market in 2013 contained requested rate increases of 10 percent or more and 23.1 percent of rate filings contained implemented rate increases of 10 percent or more. Rate increases of 10 percent or more affected a larger share of covered lives in the individual market than in the small group market. In the individual market, 42 percent of covered lives had an average requested rate increase of 10 percent or more and 41 percent had an implemented rate increase of 10 percent or more. Table 1 summarizes the results for the individual health insurance market.
Table 1: Rate Change Requested Versus Rate Change Implemented in the Individual Market (Based on Analysis of 40 States)
| Individual Market Rate Change, 2013 | Requested | Implemented7 |
|---|---|---|
| Number of rate filings in 40 states | 647 | 647 |
| Filings with rate change requested≥ 10% for 40 states (%) | 25.0% | 23.1% |
| Average rate change: | ||
|
For 40 states |
11.2% | 10.3% |
|
When request ≥10% for 40 states |
18.4% | 16.9% |
| Covered Lives: | ||
|
Number of covered lives affected by these rate filings |
6,918,000 | 6,918,000 |
|
Covered lives with rate change requested ≥10% for 40 states (%) |
42.0% | 41.0% |
|
Covered lives with rate change request reduced or denied (%) |
23.7% | |
| Total covered lives with rate request change reduced or denied based on 10.9 million total covered lives for all states | 2.6 million | |
| Total U.S. estimated reduction in premiums based on $32.3 billion total premiums in the individual market for all states | $290 million | |
| Sources: Revised State Rate Review Grant (RRG) data and data from state websites8 | ||